ARC: Add support for CVX (Convex Finance Token)


Title: ARC Add support for CVX
Author: Llama Community members @MatthewGraham, @JeanBrasse and @Dydymoon with help from @zze
Created: 15/02/2022


References:

Project: https://www.convexfinance.com/
Whitepaper: https://raw.githubusercontent.com/Convex-Dev/design/main/papers/convex-whitepaper.pdf
Github: convex-eth · GitHub
Documentation: Welcome to Convex Finance - ConvexFinance
App: https://www.convexfinance.com/stake
Audit: audits_public/Convex Platform at master · mixbytes/audits_public · GitHub
Dune: ​​https://dune.xyz/Marcov/Convex-Finance
CVX: $17.44 | Convex Token (CVX) Token Tracker | Etherscan
Chainlink: Ethereum Data Feeds | Chainlink Documentation
Twitter: https://twitter.com/convexfinance
Telegram: Telegram: Contact @convexEthChat
Discord: Convex Finance

Summary

The Llama Community would like to ask for your support in listing CVX as a collateral asset. CVX is the governance token of the Convex Finance protocol.

Motivation

CVX is not currently listed on major lending markets, including CVX on the platform would allow Aave to benefit from the first mover advantage. This has the potential to be a meaningful high vol asset revenue source. CRV is currently the fifth highest earn asset on the Aave V2 Market and has generated 190.33k aCRV tokens in revenue worth around $578.04k at the time of writing.

In addition to the lending and borrowing demand, the aCVX revenue can be used to support directing CRV and CVX incentives distribution to those who stake Curve Liquidity Provider tokens on Convex Finance. Further details can be found here.

Specification

1. What is the link between the author of the AIP and the Asset?

Llama Community has presented a proposal to deposit Aave community funds into Curve and Convex Finance. Listing CVX on Aave enables Aave to earn aCVX tokens which can then be used to support the treasury management proposal detailed here.

2. Provide a brief high-level overview of the project and the token?

Convex allows Curve.fi liquidity providers to earn trading fees, CVX liquidity mining and boosted $CRV rewards without having to lock and use their boosting power with veCRV… Adding support for $CVX will in turn provide future opportunities as Convex will also support other protocols in time. ie: FXS

CVX is the governance token of the Convex protocol. By locking $CRV for life on Convex, each user gives his veCRV voting power to vlCVX holders (CVX lockers). Every vlCVX holders can vote on Convex governance proposals but also Curve governance proposals and gauges weights (5.05 veCRV/vlCVX). In the future, each vlCVX holders will control voting power on other tokens like FXS (users already can lock for life FXS for cvxFXS but vlCVX holders cannot vote on Frax governance proposals and gauges weights).

3. Explain positioning of token in the AAVE ecosystem. Why would it be a good borrow or collateral asset?

CVX would make an excellent fit for collateral in the Aave ecosystem. Adding CVX creates another use case outside of the Convex tokenomics model. Llama expects the CVX demand to be similar to CRV. Additionally:

  • Significant Borrow Demand: Users can borrow CVX and then either stake or lock the CVX token to earn yield. In addition to direct yield, investors may borrow CVX to lock and then influence how the inflation schedule of CRV and CVX is distributed. CRV has one of the highest utilisations and dollar value borrowed of all high volatility assets listed on Aave V2.
  • CVX holders can deposit (lend) CVX and then borrow stablecoins for farming, going leveraged long/short, and implementing structured products (e.g. carry trade).

Llama Community intends to use the aCVX revenue generated to support Treasury Management activities. In this instance, aCVX could be redeemed and locked on Convex to then influence how the CRV and CVX inflation schedule is distributed. Llama Community intends to use the CVX to support growing the Aave and sAave Curve liquidity pools.

There is $43.2M TVL on the sAAVE pool and $11.8M TVL on the AAVE pool on Convex.

The Convex community is looking forward to lending and borrowing CVX on Aave. The community will enjoy extra revenues from the reserve factor.

4. Provide a brief history of the project and the different components: DAO (is it live?), products (are they live?). How did it overcome some of the challenges it faced?

Convex, as DeFi farmers themselves, the team needed a platform that allowed users to receive the max boost possible from CRV in a simplified manner and allow users to collect their actual rewards directly without auto-selling. They also believe CRV stakers should be rewarded more as they are effectively, mining together with Liquidity Providers. They intend to change that with Convex by charging a lower performance fee, returning fees back to the CRV stakers and CVX token holders, and distributing rewards directly.

The concept of Convex was published to the public on April 15, 2021 with the protocol launching on May 17, 2021.

30th April 2021 - Convex platform was whitelisted on the Curve platform
17th May 2022 - Convex was released
7th September 2021 - CVX vote locking went live

5. How is the asset currently used?

The CVX token governs over 559M$ worth of CRV locked in the protocol (and $4M worth of CVX in the Convex treasury multisig). CVX is currently only available on 2 Fuse pools, however there is no liquidity there.

6. Emission schedule

The emission schedule can be found here.

7. Token (& Protocol) permissions (minting) and upgradability. Is there a multisig? What can it do? Who are the signers?

Convex multisig can be found here.

8. Market data (Market Cap, 24h Volume, Volatility, Exchanges, Maturity)

9. Social channels data (Size of communities, activity on Github)

  • Discord: 5,920 members
  • Twitter: 37.7k followers
  • Github: 22 followers

10. Contracts date of deployments, number of transactions, number of holders for tokens

9 Likes

Title: CVX Security and Risk Assessment
Author: Llama Community members @MatthewGraham, @JeanBrasse and @Dydymoon.
Created: 01/03/2022


CVX Security and Risk Assessment

##CVX

Convex Finance’s main goal is automation and boosting rewards from curve gauges. Users can deposit their Curve Liquidity Provider (LP) tokens into a Convex pool, the pool automatically locks the LP token into gauges and provides additional incentives to what is administered on Curve. CVX can be locked, creating vlCVX which can then be used to vote on how CRV incentives are distributed on the Curve platform. Convex Finance controls around $379M worth of veCRV, which using coingecko represents around 35% of CRV circulating supply.

Smart contract risk: B

The CVX token was launched in May 2021. The CVX token is central to the DAOs model which enables holders to lock their CVX and vote to determine how best to use the veCRV holdings. This model, in 9 months,has generated more than 445K transactions. Convex has been audited by MixBytes and all recommended changes were implemented prior to launch.

Counterparty risk: C

Convex is a DAO where decisions are made with governance proposals and votes. However, some functions are controlled by the team multisig.

The multisig is a ⅗ required signatures controlled by a part of the team but also by other people:

  • C2tP - Convex Finance
  • Winthorpe - Convex Finance
  • Charlie - Curve Finance
  • Tommy - Votium
  • Sam - Frax Finance

The multisig does not have direct access to user deposit but he can perform different functions:

  • Update a range of parameters such as stash factory, pool manager, change platform fees which enables things like third party incentives to be distributed and incorporating new types of Curve pools.
  • Vote on Curve DAO proposals, Curve gauge weights, set the distribution weights on the Convex Master Chief and set the parameters relating to vlCVX tokens.
  • Shutdown/pause new deposits to Curve pool staking contracts: Allow users to withdraw all funds.
  • Shutdown/pause new deposit to everything: Allow users to withdraw all funds.
  • Apply a new “operator” on the whitelisted proxy contract if and only if the current operator is completely shutdown: After removing all liquidity from Convex, the system can be shutdown and rebooted as a new version.

Market risk: C+

Convex is a leading DeFi project. Conves has amassed a large holding in veCRV and is now attaining a significant holding in FXS. CVX market cap is 1.35B$ with 74% of the circulating supply locked. The CVX/ETH pool has only 155M$ of TVL on Curve. Recently, Chainlink created an oracle feed for CVX which can be found here. There are several large DEX liquidity pools and CVX is listed on numerous CEXs which supports a robust oracle feed and also supports efficient liquidation events.

CEX:

DEX:

  • Curve: TVL CVX/ETH: $163M, Daily volume: $5M
  • Uniswap: TVL CVX/ETH: $7.71M, Daily volume: $900K
  • Sushiswap: TVL CVX/ETH: $8.5M, Daily volume: $1.5M
  • Binance CVX/USDT: Daily volume $2.9M

Proposed risk parameters:

  • LTV: 55%
  • Liquidation threshold: 65%
  • Liquidation bonus:10%
  • Reserve factor: 20%

UOptimal 50%

R_0 0%
R_s1 7%
R_s2 200%

6 Likes

Hello, I have a couple of questions here.

  1. How does adding support for $CVX play into Aave DAO’s x Llama community’s Reserve Factor strategy? (ref: ARC - Consolidate Aave V1, V2 & AMM Reserve Factors, Purchase CVX and Deploy to Earn Yield) I recall seeing that Aave would be purchasing 70,000 $CVX if that was passed - which brings up my next question.
  2. Does the proposal regarding RF passing add interest to Aave community members? Should community members be inclined to purchase $CVX and participate in Convex governance, due to Aave’s stake? If so, I feel like this proposal definitely makes sense and Aave should support $CVX!

Hi @MatthewGraham, what led you to recommend your proposed risk parameters? We at Blockchain @ Berkeley are curious as to how you are assessing the risk of adding CVX to Aave.

1 Like

@MatthewGraham Gauntlet is conducting analysis on initial CVX risk parameters and will provide results in ~3 weeks.

2 Likes

Hi @Pauljlei,

We are about to propose an AIP and are happy to lean towards being conservative. We plan on using the risk parameters mentioned in the post and knowing Gauntlet will be updating the parameters in the near future is great news. If Gauntlet would prefer for us to use different risk parameters when submitting the AIP, please do let us know here.

1 Like

Gauntlet won’t be able to provide recommendations ahead of the timeframe @Pauljlei mentioned above. As with other asset listings, Gauntlet will optimize parameters to the risk appetite of the community should the governance vote succeed.

3 Likes

@MatthewGraham @JeanBrasse @Dydymoon @zze - Gauntlet has conducted analysis from a market risk perspective and recommends the below:

Proposed risk parameters:

  • LTV: 55% → 45%
  • Liquidation threshold: 65% → 60%
  • Liquidation bonus: 10%
  • Reserve factor: 20%

Our analysis recommends more conservative initial risk parameters for CVX on Aave V2. In order to estimate potential initial user behavior, we analyzed the largest suppliers for CRV and their supply distribution as well as collateralization ratio. Although the market cap values and TVL values of CVX and CRV are fairly similar, the daily volume graphs of CVX and CRV are significantly different. The average daily traded volume for CVX is consistently lower than CRV. Considering total volume (instead of Messari real volume), CRV ADV (150MM USD) is still almost 700% larger than CVX ADV (21MM USD).

In addition to the lower initial LTV and liquidation threshold, we suggest lowering the liquidation bonus to 8.5% shortly after initial deployment (dependent on market conditions and the results of our economic simulations). Even for assets with low volume, our simulations indicate that Aave can safely lower liquidation bonus value especially if there is sufficient DEX liquidity. For reference, the Curve CVX/ETH pool has roughly 180MM USD in assets while the CRV/ETH pool has 215MM USD.

5 Likes

Hi @Pauljlei,

Thank you for doing the deep dive on the CVX parameters. We are soon to submit the AIP, so it was a nicely timed post and we’ll be sure to update the parameters. Thanks again :slight_smile:

7 Likes

Hi,

Ethereum Aave V2 market uses ETH denominated Chainlink price feeds and the provided oracle price is USD denomiated.

Could you please provide a CVX / ETH price feed?

Thanks,